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Dissecting an Injunction Hearing for Enforcing a Non-compete Agreement

In noncompete lawsuits, whether a preliminary injunction should be issued is a critical battle that in large part determines the direction of the lawsuit. For this reason, a recent decision denying a former employer’s motion for injunctive relief in a non-compete enforcement action provides critical insight for companies and individuals.

Court Denies Preliminary Injunction in Non-compete Lawsuit.

As to the background, our law firm closed out 2015 with a significant preliminary win in a non-compete lawsuit for our client; a former employee who is alleged to have started a business that directly competes against the former employer.

As is typical in this type of litigation, the former employer filed a motion for preliminary injunction, i.e., an order from the court to prevent the defendant from continuing to operate the new business and working for the company. But at an evidentiary hearing on 12/28/2015, the court agreed with our arguments that an injunction should not be granted for the former employer.

However, at an evidentiary hearing on 12/28/2015, the court agreed with our arguments that an injunction should not be awarded to the former employer. While the litigation continues, this ruling means our client may continue to operate his business during the pendency of the litigation.

Be Prepared Before filing the Complaint.

For companies, a motion for injunctive relief to enforce a non-compete should be like a perfectly executed haymaker punch – it takes time to set up, but if it connects the result is devastating. The preparation for throwing such a punch, however, begins with investigating the former employee’s departure. This includes looking for any digital fingerprints, e.g., emails, downloaded files, installing any USB drives/portable hard drives, records, customer lists, etc. Having such “smoking-gun” evidence is invaluable for the entire case and not just the preliminary injunction phase. Also, in situations where the judge may waiver on granting the injunction (i.e., where the non-compete is overly broad, concerns about whether the non-compete protects a reasonable business interest or merely restricts competition, etc.) evidence of improper conduct is often a trump card.

From the individual’s perspective, even if there were initially legitimate business reasons for you to access, download, email yourself a company file, such actions will be your employer’s “exhibit a” of your sinister scheme to wrongfully or unfairly compete. By way of example, a few years ago we represented an executive who had sent email communications to the executive’s personal email account. These emails were just forwarded email communications between the executive and an HR manager. Further, these emails only involved compensation and benefits issues arising under the executive’s contract. However, the employer went to great (and dubious lengths) claiming that its confidential business information had been misappropriated and relied upon this email chain as proof.

Similar situations have also come up in litigation where an employee was going to be away from the office and downloaded employer information to a USB drive for use while away from the office. Again, individuals should assume actions that may have had a legitimate business purpose will be (mis)characterized when it comes to litigation. And it is important to disclose any such issues to your attorney so that it can be squarely and honestly addressed.

The value of a negotiated resolution vs. gambling for a favorable judge’s decision.

No matter how strong you believe your case for a preliminary injunction may be, there are always risks in letting a judge decide the issue.

For example, returning to the 12/28/2015 evidentiary hearing, before issuing his decision, the judge noted that it appeared an injunction for the employer was appropriate. However, we focused heavily in our opposition memorandum on three arguments for why an injunction was not appropriate under Michigan law.

These were arguments that we believed were compelling and persuasive. But even so, we also made several attempts (including voluntarily producing documents that undercut the plaintiff’s claim the non-compete had been breached) to communicate with opposing counsel for negotiating a short-term resolution or stipulated order. Fortunately for our client, the plaintiff had no interest in negotiating and the Judge agreed with some or all of our arguments in denying the motion. Accordingly, both companies and individuals should always meaningfully explore a negotiated resolution that, even if it while not ideal, is something that both sides can accept if only for a temporary basis.

For more information about defending against a non-compete lawsuit or enforcing a non-compete agreement, contact Michigan attorney Jason Shinn. He frequently represents both companies and individuals in non-compete litigation, as well as working with employers on the front end to draft enforceable non-compete restrictions.

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